Outsourcing of Intermediate Manufacturing Products in Asian Economies

ETSG2006 (Wien, Sep7-9)

Outsourcing of Intermediate Manufacturing Products in Asian EconomiesYushi Yoshida

Faculty of Economics

Kyushu Sangyo University


Objectives of the paper Investigate (1)intra-regional “intermediate

manufacturing products” trade among the Asian economies & (2)the effect of FDI on these trades. Has the role of each Asian economy changed?

Ranks in quality ladder General picture China effect?

Rapid economic growth and inward FDI Bilateral trade with Japan?

Fragmentation /outsourcing


Background increase in intra-regional trades among the

Asian economies (Table 1)

well-documented intra-industry trade fragmentation / outsourcing

Jones(2000) and Arndt and Keirzkowski (2001) export-platform FDI

Motta and Norman (1996) and Yeaple (2003)


Table 1 : Share of Trade by Japan, the Asia and US among the Asian countries

Japan Asia US Japan Asia US

Exporting Country

China 0.15 0.50 0.08 0.17 0.28 0.21

Korea 0.19 0.13 0.29 0.12 0.27 0.22

Hong Kong 0.06 0.34 0.24 0.06 0.42 0.23

Singapore 0.09 0.31 0.21 0.08 0.40 0.17

Thailand 0.17 0.19 0.23 0.15 0.27 0.21

Indonesia 0.43 0.21 0.13 0.23 0.31 0.14

Philippine 0.20 0.15 0.38 0.15 0.25 0.30

Malaysia 0.15 0.39 0.17 0.13 0.36 0.21

Source: Direcion of Trade, IMF

1990 2000


Globalization in Automobile industry Two forces

World automobile conglomerates GM, Ford, Toyota, Daimler Crysler, Volkswagen, Renaul

t, PSA, Hyundai

World prodction networks


Major Automobile Manufacturers

GM Ford Toyota DC VW Renault PSA HyundaiGM Ford Toyota Chrysler Volkswagen Renault Peugeot HyundaiFiat Auto Mazda Daihatsu Mercedes/Smart SEAT Nissan Citoroen KiaDaewoo Volvo Hino Mitsubishi Skoda Nissan DieselIsuzu Land Rover Evobus Audi DaciaSuzuki Jaguar Setra Lamborghini Renault-SamsungFuji (Subaru) Aston Martin Freightliner Bentley

Stering Truck Rolls-RoyceThomas Built Bus ScaniaWestrn StarAmerican LaFrance

Source: Fourin's Monthly Report on the Global Automotive Industry (No.213, p.1, May 2003)Note: The above figures may include double counting.


Table 3: Production of Automobiles in the Asia

Japan Korea China Taiwan India Thailand Malaysia Indonesia Philippine ASIA81984 11,464,920 265,361 316,367 180,919 111,037 122,074 153,678 1,149,4361985 12,271,095 378,162 443,377 230,560 82,106 105,470 139,438 1,379,1131986 12,259,817 601,546 372,753 238,875 74,162 61,837 162,630 1,511,8031987 12,249,174 979,739 472,538 288,930 98,147 49,153 159,635 7,905 2,056,0471988 12,699,807 1,083,655 646,951 312,356 154,183 85,057 156,192 17,456 2,455,8501989 13,025,735 1,129,470 586,936 337,125 213,548 142,487 174,314 46,101 2,629,9811990 13,486,796 1,321,630 509,242 364,393 304,843 206,094 271,712 54,374 3,032,2881991 13,245,432 1,497,818 708,820 355,036 283,115 232,399 254,737 46,000 3,377,9251992 12,499,284 1,729,696 1,061,721 320,164 327,989 171,289 172,234 3,783,0931993 11,227,545 2,050,058 1,296,778 371,630 420,041 180,407 203,588 80,920 4,603,4221994 10,554,119 2,311,663 1,353,368 475,150 434,001 217,892 325,021 100,098 5,217,1931995 10,195,536 2,526,400 1,452,697 636,016 525,680 312,349 387,541 123,177 5,963,8601996 10,346,699 2,812,714 1,474,905 757,916 559,428 390,609 325,495 136,556 6,457,6231997 10,975,087 2,818,275 1,852,682 749,655 360,303 449,765 389,279 110,983 6,730,9421998 10,041,958 1,954,494 1,627,829 404,545 627,679 158,130 164,125 58,079 45,040 5,039,9211999 9,892,389 2,843,114 1,830,323 350,273 815,151 327,233 302,822 123,244 65,588 6,657,7482000 10,140,796 3,114,998 2,069,423 372,613 801,306 411,721 359,192 345,416 70,851 7,545,5202001 9,777,191 2,946,329 2,347,616 271,712 824,936 459,418 428,701 328,226 65,202 7,672,1402002 10,257,315 3,147,584 3,286,804 333,699 927,806 584,951 456,822 353,528 74,844 9,166,0382003 10,286,318 3,177,870 4,443,686 386,686 1,172,668 750,512 424,107 374,146 84,208 10,813,883


Table 4: Sales of Automobiles in the Asia

Japan Korea China Taiwan India Thailand Malaysia Indonesia Philippine Singapore Asia91984 5,436,759 210,118 405,110 175,642 113,502 127,090 152,331 11,594 1,195,3871985 5,556,834 246,282 797,369 222,855 86,178 106,988 144,314 6,778 1,610,7641986 5,707,814 288,251 522,805 235,251 78,454 67,308 162,029 4,182 1,358,2801987 6,018,399 420,048 539,720 287,292 101,624 48,996 159,720 8,182 1,565,5821988 6,721,004 523,476 746,184 313,567 146,480 71,592 158,140 20,311 1,979,7501989 7,256,673 762,959 672,490 319,506 208,243 109,357 178,147 46,993 2,297,6951990 7,777,493 954,277 574,672 340,395 304,062 165,861 274,603 57,865 2,671,7351991 7,524,759 1,104,184 807,274 317,500 268,560 181,877 261,344 47,949 2,988,6881992 6,959,073 1,268,374 1,271,808 304,684 362,987 145,084 169,533 60,360 3,582,8301993 6,467,279 1,435,967 1,606,877 351,904 456,468 167,928 210,679 83,811 4,313,6341994 6,526,696 1,555,602 1,636,428 437,690 485,678 200,435 321,760 103,471 4,741,0641995 6,865,034 1,555,902 1,610,812 586,901 571,580 285,792 378,704 128,162 5,117,8531996 7,077,745 1,644,132 1,550,768 679,578 589,126 364,788 332,035 162,087 5,322,5141997 6,725,026 1,512,935 1,901,721 701,775 363,156 404,837 386,691 144,435 5,415,5501998 5,879,425 779,905 1,653,620 475,143 607,400 144,065 163,851 58,303 80,231 42,681 4,005,1991999 5,861,216 1,273,029 1,855,420 423,109 820,831 218,330 288,432 93,814 74,414 53,582 5,100,9612000 5,963,042 1,430,460 2,084,990 421,276 842,405 262,189 343,173 300,964 83,949 85,706 5,855,1122001 5,906,471 1,451,450 2,395,212 347,388 829,036 297,052 396,381 299,560 76,670 85,100 6,177,8492002 5,792,094 1,622,268 3,384,507 398,597 877,837 409,242 434,954 317,788 85,587 77,946 7,608,7262003 5,828,178 1,318,312 4,565,619 413,361 1,076,318 533,176 405,010 354,629 92,336 98,836 8,857,597


Data for Automobile components products Trade data (30 products)

HS 6-digit classification (COMTRADE, UN) Appendix 1 and Appendix 2

HS 9-digit classification (Japan, MOF)

FDI data (OJCD) automobile makers components suppliers


Appedix 1: HS-6 codes for automobile components

Engines Electronics Body Parts840732 851110 870810840733 851120 870821840734 851130 870829840820 851140 870831840991 851180 870839840999 851190 870840841430 851240 870850

870860870870870880870891870892870893870894


Appendix 2: Definitions for subcategories of "8708" subsection

(8708: Parts and accessories of the motor vehicles of headings 87.01 to 87.05 )

Definitions HS (MOF) Unit 1 Unit 2Bumpers and parts thereof 870810 000 KG

Other parts and accessories of bodies (including cabs):Safety seat belts 870821 000 KG

Other 870829 000 KG

Brakes and servo-brakes and parts thereofMounted brake linings 870831 000 KG

Other 870839 000 KG

Gear boxes 870840 000 KG

870850 000 KG

Non-driving axles and parts thereof 870860 000 KG

Road wheels and parts and accessories thereofFor tractors of heading 87.01 870870 010 KG

Drive-axles with differential, whether or


Changing roles for intermediate production in the Asia (1) Bilateral trade with Japan (the number of

product variety) Korea and Taiwan have exported most of the

sample products

the number of product variety increased for the rest of the Asia


Figure 1: The numbers of automobile components exported to Japan

0

5

10

15

20

25

30

35

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

China

HongKong

India

Indonesia

Korea

Malaysia

Philippine

Singapore

Taiwan

Thailand

Vietnam


Changing roles for intermediate production in the Asia (2) Quality ladder

unit price proxy

products might be different in size, but unit price approximates value-added over one unit of material used.

ex) bumper and its components ranking measure shows convergence

, ,, ,

, ,

i j ti j t

i j t

VP

Q


Figure 2. Unit Price for Bumper and its components (MOF, 870810000)

Korea

China

Taiwan

Hong Kong

Thailand

Malaysia

Philippine

Indonesia

0

0.5

1

1.5

2

2.5

1,000yen/Kg

2004


Figure 3: Unit-price Ranking

0

50

100

150

200

250

300

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

China

HongKong

India

Indonesia

Korea

Malaysia

Philippine

Singapore

Taiwan

Thailand

Vietnam


Empirics

Estimation Model

Panel estimation Annual bilateral export data (1993 - 2003) Exporting countries:

Japan, China, Korea, Hong Kong,Malaysia, Thailand, Philippines, Indonesia, India

Importing countries: 9 + US

, , , , , , , , , , ,i j k t i k i t j t i j k t i j k tEX FDI FDI Z



Expected signs

PROD + FDI : (M or P) FDI (X or M)

MakerFDIX - if local procurement increases

MakerFDIM + increase in demand for components

PartsFDIX + increase in supply capacity (export-platform FDI)

PartsFDIM + if complements / - if substitute


Table 6: FDI and Automobile components export

Dependent variable: Automobile component export[1] [2] [3] [4]

Independent variables:

PROD 0.522 *** 0.569 *** 0.541 *** 0.594 ***

0.059 0.057 0.060 0.058

FDIX 27203 *** 34195 ***

10498 10096

FDIM 62765 *** 63849 ***

5235 5029

MakerFDIX -58967 -11351

102607 98625

MakerFDIM 121706 *** 144728 ***

45969 44173

PartsFDIX 39936 ** 40988 **

18304 17583

PartsFDIM 53719 *** 51420 ***

8760 8416

TREND -316023 *** -271882 *** -316398 *** -268977 ***

80556 77408 80747 77589

Country Dummies yes yes yes yesCommodity Dummies no yes no yes

Adj R2 0.12 0.19 0.12 0.19

NOB 12963 12963 12963 12963Note: The figures below the coefficient estimates are standard deviations.

(-)

(+)

(+)

(?)


Empirical results (1)

General results FDI effects are different for makers’

investments and suppliers’ investments Makers’ FDI in importing countries promotes

components trade Suppliers’ FDI in exporting countries also

promotes components trade Suppliers’ FDI in importing countries has

complementary effect for components trade


Table 7: China Effect

Dependent variable: Automobile component export

[1] [2]Independent variables:

PROD 0.518 *** 0.514 ***

0.072 0.072

MakerFDIX 105692 111073

260288 260482

MakerFDIM 66928 64280

63679 63662

MakerFDICHN -283248 ***

110477

PartsFDIX 52864 ** 55121 ***

20853 20891

PartsFDIM 65031 *** 65876 ***

9127 9134

PartsFDICHN 31779 *

18030

TREND -275547 *** 43532

87267 361202

Country Dummies yes yesCommodity Dummies yes yes

Adj R2 0.19 0.19

NOB 9781 9781



China effect Makers’ investments in China decreases compon

ent trade between other countries in the Asia.Shift to China

Suppliers’ investments in China promotes component trade between other countries. Complementarity among intermediate products


Table 8: Japanese automobile components trade

Dependent variable: Japanese export Japanese import

Independent variables:

PROD 23.33 *** -0.349

2.61 0.508

MakerFDIX -89118

95707

MakerFDIM -335714

392276

PartsFDIX 103060 ***

15446

PartsFDIM -49424

72384

TREND -780221 ***

304085Country Dummies yes yesCommodity Dummies yes yes

Adj R2 0.44 0.29

NOB 2427 1776



Bilateral trade with Japan Japanese exports

No effect of FDI for importing countries

Japanese imports Positive effect for suppliers’ FDI No effect for makers’ FDI


Conclusions (1) Convergence in product variety and

quality for automobile components trade among the Asian economies

(2) Distinct effects of FDI by makers and suppliers on component trade

(3) Large inflow of FDI in China affects components trade among other countries in the Asia.

(4) Some evidence of vertical-FDI in bilateral trade with Japan.

Outsourcing of Intermediate Manufacturing Products in Asian Economies

Documents

sep79etsg2006 wien

yeaple 2003etsg2006

asian economy

asian economies table

share of trade

intraregional trades

inward fdibilateral

tha direcion of trade